Wednesday, August 13, 2014

School's back. So are some, but not all, education tax breaks

If school hasn't started in your area yet, it soon will.

For many families, classes resume at college. And with higher education costs going up every year, students and their parents who help foot most of or the entire school bill are always on the lookout for any available assistance.

Students enjoying being back at the College of DuPage Glen Ellyn, Illinois, campus. Photo courtesy College of DuPage Newsroom via Flickr.

The American Opportunity tax credit (AOTC), renewed through 2017 as part of so-called fiscal cliff tax bill, could net qualifying college students or their bill-paying parents a $2,500 credit.

Some could even get another $1,000 back as a refundable credit, meaning the Internal Revenue Service will send you the money even when you don't owe any tax.

The Lifetime Learning tax credit is available, as the name indicates, for schooling costs at any time. It's worth a possible $2,000 credit.

Tuition and fees deduction status unclear: One education tax break, however, is in limbo for the 2014. The tuition and fees deduction is part of the extenders package, those tax laws that expire periodically and must be renewed by Congress.

This tax write-off, one of the above-the line deductions available without having to itemize on Schedule A, expired at the end of 2013.

The Senate wants to keep the tuition and fees deduction (and more than 50 other extenders) in place as is through 2015.

The House, however, has fiddled with some extenders, including several education tax breaks.

As part of that process, the existing AOTC's provisions would be merged with the Hope credit (which AOTC temporarily replaced in 2009), the Lifetime Learning credit, and the tuition and fees above-the-line tax deduction.

What will happen with these various education tax credits? Will the House desire to consolidate educational tax benefits prevail?

Or when a lame duck Congress convenes after the November election, will the short time frame to get work done mean Congress will go along with the Senate's extenders-as-usual approach?

Or will all the extenders, including the tuition and fees tax break, finally die?

IRS working on forms: We must wait and see. But in the meantime, the IRS is pushing ahead with its work, revising tax forms for the 2014 tax year.

One of the forms that is in the update process is Form 8863, which you must file to claim the education tax credits.

If things change -- and the way Congress works (using that word loosely) that's a pretty good bet -- the IRS will have to tweak this form some more.

But at least it's got a head start on the process.

You, too, should be looking into what tax help is available for you and your students as soon as possible. Knowing what educational tax breaks are out there and which ones you qualify for can help you put together an overall college financing strategy.

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Daily Tax Tip

Roth vs. traditional IRA -- Both Roth and traditional IRAs offer some type of tax savings. And you have until April 15 to open and/or contribute to one of them for the prior tax year. But which type of IRA to choose? Roth IRAs offer a good way to put away money tax-free for retirement. Traditional IRAs could provide some folks with an immediate tax deduction. These additional details, comparisons and IRA picking tips can help you decide. (March 31, 2015)

Did you miss a daily tip posted above? No worries. They're collected in the 2015 Daily Tax Tips pages, one for each month of the filing season: January, February, March and, coming soon, April. And stay tuned for Weekly Tax Tips, coming after we survive the April 15 filing deadline!

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Counting Down to Tax Day

Tax filing day 2015 will be here before you know it, but our countdown clock to the 11:59 p.m. April 15 deadline will help make sure you don't miss it.

Time for Tax Tasks

March 1: It's March, the last full month of tax-filing season. Are you attacking your tax return like a lion? Or have the Internal Revenue Code's complexities turned you into a tax lamb?

Either way, you're at the right place. The following tax tips are for filers regardless of March animal avatars.

If so and you received $20 in tips in February, use Form 4070 to report them today to your employer. And don't forget to include the value of atypical tips.

March 16: Business filers generally beware the Ides of March because the 15th day of this month also is the corporate tax filing deadline, which can be dangerous to a company's bottom line. This year, however, the deadline day was on a Sunday, meaning that business taxpayers must file and pay any due tax by today.

March 17: It's St. Patrick's Day! But don't trust lucky charms to get you through a tax audit. Be prepared by, among other things, making sure you have sufficient documentation for all your tax claims and hiring a tax pro with audit defense experience to guide you through the process.

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March 25: If you celebrated your 70½ birthday last year (and who doesn't have parties for half birthdays?) and didn't take money out of your tax-deferred retirement accounts by the end of 2014, you must make a specified withdrawal by April 1. No joke. These required minimum distributions, or RMDs, are Uncle Sam's way of finally getting his piece of your traditional IRA, workplace 401(k) or self-employed retirement plan pie.

March 31: You've put the finishing touches on your 1040 and are finally ready to file. Wait! Take one quick review of your forms to ensure you haven't overlooked any tax breaks or made any common tax mistakes. All's good? Then drop your return in the snail mail box or hit enter to e-file.

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I am a professional journalist who has been covering tax issues since 1999. I am not a professional tax preparer. The content on Don't Mess With Taxes is my personal opinion based on my study and understanding of tax laws, policies and regulations. It’s provided for your private, noncommercial, educational and informational purposes only. It’s not a recommendation of any specific tax action(s) you should take. Similarly, mentions of products or services are not endorsements. In other words, my ramblings on the ol' blog are free advice and you know what they say about getting what you pay for. That's why when it comes to filing your taxes, I urge you to get additional, professional, paid-for guidance from an accountant, Enrolled Agent or other qualified tax professional who is familiar with your individual tax circumstances.

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